Short Setup: ACI

Another day of bounce would setup the perfect short in ACI:

Exiting Apple Short Trade

I exited the remaining position in the AAPL short trade at $37.44. The stock is now near a decent support area and may be set to bounce. Keep an eye on the bounce. If it's on weak volume, we'll get another good short opportunity via a "dead cat bounce". Right now, the volume pattern is showing strong distribution.

SPY at a Glance

The doji candle printed Friday, which follows a bounce on low volume with overbought stochastics, leads me to believe we'll see a pullback this week.

The Line

I could not have imagined the QLD trade working better than it has. I took partial profits at $72.88 today (entered at $67.88, as noted in the free trial of the Trade Report) for a $1250 gain (+7.3%). I've moved my stop on the remaining position up to my entry point, and have had thoughts about moving it up to $70.

The key level is the $78-79 range. That is the first major area of resistance for this bounce to bump up against. This level has been important over the past year. Notice on the chart below how price moves along this line. The April breakout did not mount this level until it pulled back first.

The "line" is where I will likely reverse from long to short. It's a great short entry, where a logical stop could be placed either just above the "line" or above the 50 day MA. This assumes volume patterns play out. If I see true accumulation, I doubt I'll short.

How Can You Not Bet Against Gold?

I am hearing a lot of bullish chatter amongst bloggers and media about the near future for gold. This seems to always happen when a former leader (momo stock) breaks down and prints a dead cat bounce. I love it when this happens.

Let's ignore the talking heads and take a look at the chart. First, we see a head and shoulders top that is in the later stages of forming. Many traders like to wait for price to break the neckline, which is the line drawn on the chart below around $85. I don't take this conservative approach when a stock is clearly showing distribution--heavy volume on the initial breakdown. Once I see a weak volume bounce up towards resistance, I enter.

The neckline is my initial target, where I will likely take partial profits and move my stop to protect the profit. If the neckline breaks, the remaining shares will likely give me a huge gain. If I get stopped out, I will usually still make a nice 5-10 percent gain.

Back to the chart. Take a look at the squares drawn over the volume bars. It is clear that the volume pattern is bearish. Huge volume on the initial drop and overall heavier volume on down days signals distribution. The smaller rectangle highlights the volume on the recent bounce. The putrid volume tells me there's not much conviction right now and the ETF is not ready to reclaim its momo status (heavy volume on the bounce would tell me the bounce was just a deep pullback within trend).

Finally, the stochastic confirms the theory that the bounce has created an overbought condition within a down move that provides for a good entry.

Today i added to my bearish gold position, buying 400 shares of DZZ at $26.60. While I use GLD for my gold analysis, I like use DZZ to take a short position, since it provides extra leverage.

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Quick Thought: The Commodity Bounce

Many broken commodity plays, like the ag sector, have made big bounces today (as of 11:35 AM ET). Keep an eye on volume. One of two things is going to happen:

1. A low volume bounce which will be a "dead cat" signal. If this happens I will intitiate shorts in stocks like MON and TRA.

2. The sector comes storming back on strong volume. This will tell us that the recent action was merely a pullback and it's time to get long again.

Distribution patterns give the edge to the "dead cat" prognostication, but I won't enter in either direction until I get a clear signal.

Market Notes and a Trade

There has been some confusion that I would like to clear up. Some of you think that I am bullish on the market because I am making long play on the S&P 500. Nothing could be further from the truth. This is a short term bounce play within a downtrending market. Until the indexes can break resistance, I am a bear who is willing to play situational longs.

This is the time to play a few bounces and get ready to reload shorts. For short plays, I am looking for broken stocks on my short list (stocks that have topped and now downtrending) that are making feeble bounce attempts.

This morning I added some to my DECK short, 50 shares at $107.35. If we continue to bounce on low volume tomorrow, you can bet I will add some more shorts.

Weekly Spy Chart

Analysis of the weekly SPY chart leads me to believe the market still has room for a bounce before the next downturn.

Key factors in support of bounce:
1. Bounce at major price support
2. Stochastic oversold crossover developing
3. More room to move until resistance reached.

Note that each time stochastic has reached oversold levels and crossed we've seen a decent sized bounce.

Key factors in support of continued downtrend post bounce:
1. Topping price action pattern
2. Major volume distribution
3. Major resistance

If volume stays low, I will likely unload long positions once resistance is reached and deploy some shorts.

Short Term Capitulation?

I have a feeling we might be in the midst of short term capitulation. Things look really bad, many former leaders are getting abused and it is really tough to buy right now.

Note that does not mean we are going to see the uptrend resume. If we get a post capiutlation bounce, I think it will be of the "dead cat" variety, and we we resume the downtrend later this month. A bounce might be a good place to add shorts.

I have exited most shorts and made two buys.

I took a pilot position in RICK at $24.90. My stop is just under $24, with the recent high at $28. Low risk, decent reward. If the market continues to tank and I get stopped out, no big deal.

My other buy was MON at average price $115.23. This one got dicey when it dropped below $110, but it has recoved and his back up over $117.

I likely won't do anymore buying. I don't like to go all in on up bounces in downtrending markets. I'll make a few small long plays, but that's it. I do still like gold and oil related stocks on the long side.

Quick Trade Update

I took small long positions in CF (92.05), AAPL (179.80), FSLR ($235.25) and RIG (132). The first three were so oversold that I decided to buy after they started to bounce off their lows. If we get the holiday bounce everybody is waiting for, these stocks should do quite well.

I used strength to short dryshippers DRYS ($77.13) and EXM (33.75). Both still could move a little higher (in fact, both closed above my short entry), however, the bounce was too good to pass up. They have very "toppy" looking formations.

I can see DRYS testing the 200 day moving average at 60. I am using a loose stop (83). If it breaks above 83, we may see a run to the 50 day moving average at $100 before resuming the downtrend. I don't mind taking the risk of loss considering the possible gain. If I get stopped out at $83, you can bet I'll try again at $100.

I took profits in shorts QID and AKAM.

Trade Notes

I exited DCO at 42 (entry at$38.10) for a $1170 gain (+10.1%) . The setup was an earnings breakout-pullback. I will re-enter on a pullback to $40.

I exited 200 shares of NOV at $67.35 (entry at $63.74) for a $722 gain (+5.7%) . This was an oversold bounce play that now looks like a good deat cat bounce short. I may short it later today.

I exited OII at $67.04 (entry at $62.50) for a $908 gain (+7.5%). Same setup as NOV.

I covered my VMW short at $94.46 (short at $89.10) for a 1072 loss (-6.1%). I still like this as a short. Volume on upmove is low. It's just bouncing more than I expected.

I am short another 200 shares of QID at $38.75.

I am short another 200 shares of TOL at $22.44.

Trade Notes

Today's bounce may present a good short entry. I just went short VMW (89.10) as it nears resistance (former support), TOL (21.46), and took small positions in ultrashorts QID (40.85) and SDS (55.56).

On the long side, oil stocks are extremely oversold. I took small long positions in NOV (63.74) and OII (62.50).

Note that all of my plays are with small positions sizes. I will not allow for big losses in this environment.

This post is for entertainment and educational purposes only. Do not use for any other purpose. Do not buy or sell based on what's in this post or site. Please read to the bottom of this post.

SGR Lookin' Like a Dead Cat

Shaw Group Inc. (SGR) is a former high flying stock that seems to have lost its mojo. In July, the stock gapped up after a long uptrend, but could not hold the gap level. It now looks like the gap was an "exhaustion gap", which usually comes at the end of an uptrend and signals a downswing.

SGR is in the midst of what could be a "dead cat bounce." As a short play, I like the fact that the bounce towards the 50 day moving average has been on low volume. Take a look at the recent volume pattern I highlighted on the chart; lots of high volume down days sprinkled with a few low volume up days. This is a bearish volume pattern.

This is a great short play that I wish I had entered at the close today. If I see price strength on weak volume, I will likely give it a go tomorrow (as long as price does not cross the 50 day moving average without moving back down).

If You Feel Like Throwing up, Go Against Your Better Judgment

I subscribe to the theory that when things are at their worst, when you have that knot in your stomach that makes you want to throw up, and you feel like there's nothing but gloom ahead, that is the time to do the opposite of what your emotions are telling you to do.

I call this the George Costanza Opposite approach to trading. Pay attention, this is some of the technical stuff I have ever posted here.

George one day realized that every decision he had ever made in his entire life had been wrong. So he decided that when he had a strong instinct to do something, he would do the opposite. No surprise, the decisions that went against his better judgment turned out to be the right moves.

I only had two positions today, so I had little invested in the market. By the time the Dow was down 300 points, I was stopped out of both positions. However, once I saw the red three hundred flashing before my eyes, I got really nervous. I know, it made no sense, since I was 100 percent cash. Yet there I was, pacing back and forth at my desk. I knew I looked like a fool, so I sat down. That's when I felt the butterflies.

Since I had no positions to exit, I told myself I should sell the market. I felt like I was about to miss the big move. Then I remembered something I had read before. When you just can't take it anymore, that is when a bottom is coming. I immediately went into Zen mode and cleared my mind of all preconceptions. I took a look at some charts and noticed how oversold the market was, so I decided to buy.

I bought ZEUS and RIO, even though the steel sector is on my short watchlist. I bought LEH, AAPL, BIDU, CROX and NOV (I'll post the trades tomorrow). Note that these are very short term plays. I still think the expected bounce might not last, and we could see more to the downside.

Since everybody has analyzed the indexes, I'll refrain from posting the SPY chart. Just remember that a positive hammer stick printed right at support on heavy volume. At the least, this is a sign that we will see a short term bounce.

One last point. It seems that everybody thinks a bounce is coming. CNBC, the Fast Money guys, respected bloggers and even crappy bloggers. This worries me. When everybody thinks the market will zig, that's when it is likely to zag. Maybe this will cause the expected bounce to be short lived. Or maybe I'm just too paranoid.

Trades: AAPL and NOV

I sold 150 shares of AAPL at $125.84 (entry at $121.75) for a $613.50 gain (+3.3%). I noted the exit in the comments section of my last post.

At the close, I sold 200 shares of NOV at $116.11 (entry at $109.64) for a $1294 gain (+6.0%).

Both trades were pullback plays off of extreme weakness. While buying on this type of weakness can be risky, I felt they were low risk, high reward trades. When I bought the stocks, they had fallen right into very strong support areas. If you look at the charts below, you will see that price could not help but to bounce.

Note that these were extremely short term plays. AAPL actually looks like a good short candidate for my normal swing trading style, and is on my primary short watchlist. However, it was obvious the stock was a good long day trade, due to the support level.



NOV is still a good long candidate, as long as the 50 day moving average holds and OBV remains strong.

Today's Trade: DXPE and TSL

I bought 350 shares of DXPE at $47.55. This is a breakout-pullback play. The stock broke out and is pulling back on diminished volume. I will likely place a stop at $44, and my initial target is $52.50, making for a 3:5 risk to reward ratio.

Note that I've been going with smaller positions sized of late. Most of the indices are hitting the top of their trend channels, so I am expecting a pullback in the near future. Specific to DXPE, it's in the midst of it's second breakout from it's base, causing me to be a little more cautious.

I sold 250 shares of TSL at $55.47 (entry at $51.07) for an $850 gain (+6.6%). My initial target was $60, but I'm not happy with the volume on the upmove. This leads me to believe this move is a dead cat bounce that will continue to breakdown, rather than a reversal upswing.

It's a Small World - ETF Style

It's amazing how similar almost every single market looks, whether we are talking sectors or countries. Let's take at some country ETFs.

I'll start off with Brazil, since EWZ is one of my favorite trades. It is not surprising that we see a death defying drop followed by a low volume pullback into resistance that works off the oversold conditions that occurred last week.

Now let's look at the U.S., via the S&P 500. I can analyze this chart by cutting and pasting what I wrote above. I'm not gonna even bother to annotate the chart.

Malaysia- ditto

Singapore- control c, control v

Let's move on from Asia and go to Europe. France - cut and paste

Every chart I find is going to be more of the same.

If you think this bounce is just a pause before the next leg down, you can basically take your pick of just about any country, index or sector. It makes no difference. As you all know, I've been using QID as my current "go to" trading vehicle, but I could very well pick from many legit choices.

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Get Ready to Short the Bounce

Hopefully this bounce can last another day or two. I will use market strength tomorrow to deploy a few short plays. A lot of sectors are setting up the same way, so I'll stick to QID and a few select sectors and stocks. Financials, commodities (not oil), tech and China stocks head my list of short plays off bounces.

I like QID here or if it falls into the $54-55 range.


MS looks good on strenght into resistance. It would require a loose stop above the recent gap level.

How I will play this market and Trades

Here are the notes I wrote to myself last night:

Control your emotions. Do not feel the need to make any big bets or predictions. Do not feel the need to make money out of this fall. It's okay to make some bets, but make sure to use a small position size or control risk.

Expect a dead cat bounce in the next few days. The key will be what happens after the bounce.

Do not watch CNBC. I'm cool with reading from sites and blogs of people I respect, but no TV.

Adhere strictly to stops.

Keep it simple stupid. Watch major support and resistance lines. Don't make plays that are in no man's land.

Keep it simple stupid. Narrow the stocks you follow. At this point, only play major momentum stocks and market leaders, index ETFs (leveraged), sector ETFs and one or two stocks from sectors of interest. That's it. At least for the time being.

Trades:
I already mentioned the QID trade. I bought 1000 shares at $53.82.

I sold 500 shares of CENX at $45.80 for a $920 loss (3.8%).

I sold 100 shares of GS at $207.05 for a $695 loss (3.4%)

I sold 50 shares of GS at $205.24 for a $146 loss (1.4%)

I sold 500 STLD at $37.45 for a $1285 loss (6.9%)

I made two day trades yesterday, along with a short that I covered today.

I bought 1000 QID as it broke past $53 ($53.11) and sold at $54.43 for a $1320 gain (+2.6%).

I bought 400 DXD (double short Dow 30) at $58 and sold at $59.26 for a $504 gain (+2.1%).

I went short 500 shares LEH at $74.93 and covered at $73.60 for a $665 gain (+1.8%).

I am still holding on to RL. I am watching QID, DXD, DDM and QLD (all leveraged index ETFs) closely. Sectors of interest include energy, retail, brokers, metals and other commodities. I am also keeping a close eye on Latin America and Asian ETFs.

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